Attachment 77Q1
INVESTMENT MANAGEMENT AGREEMENT
Investment Management Agreement, made as of the 26th day of
September, 2003, by and between Homestead Funds, Inc., a Maryland
corporation (the "Company"), on behalf of the Nasdaq-100 Index
Tracking StockSM Fund (the "Fund"), and RE Advisers Corporation, a
Virginia corporation (the "Investment Manager").
WHEREAS, the Company engages in business as an open-end
management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Company is a series type investment company
currently consisting of eight series, the Daily Income Fund, the Value
Fund, the Short-Term Bond Fund, the Short-Term Government Securities
Fund, the Small-Company Stock Fund, the Stock Index Fund, the Nasdaq-
100 Index Tracking StockSM Fund, and the International Stock Index
Fund, each with its own investment program, policies, and investment
objectives, and restrictions; and
WHEREAS, the Investment Manager is engaged principally in the
business of rendering investment management services and registered as
an investment manager under the Investment Advisers Act of 1940, as
amended; and
WHEREAS, the Company retained the Investment Manager
pursuant to an Investment Management Agreement initially dated as of
September 17, 1990 and desires to continue to retain the Investment
Manager to render investment management services (i.e., investment
advisory and administrative services) to it on behalf of the Fund in the
manner and on the terms and conditions hereinafter set forth;
NOW THEREFORE, the parties hereto agree as follows:
1. Duties and Responsibilities of the Investment Manager.
1.1 Investment Advisory Services. The Investment Manager
shall act as the investment manager to the Fund and shall, subject to the
supervision of the Company's Board of Directors, provide the following
investment advisory services: (i) formulate and implement a continuing
program for the management of the assets and resources of the Fund in a
manner consistent with the Fund's investment objectives, investment
program, policies and restrictions, that may be amended and updated, from
time to time, to reflect changes in financial and economic conditions; (ii)
make all determinations with respect to the investment of the Fund's
assets in accordance with applicable law and the Fund's investment
objectives, investment program, policies, and restrictions as provided in
the Company's Prospectus and Statement of Additional Information, as
amended from time to time, provisions of the Internal Revenue Code of
1986, as amended, relating to regulated investment companies, and such
other limitations as the Board of Directors of the Company may impose by
notice in writing to the investment Manager; (iii) make all determinations
as to the purchase and sale of portfolio securities, including advising the
Board of Directors as to certain matters involving the Fund's portfolio
securities that are not in the nature of investment decisions; (iv) obtain and
evaluate such business and financial information relating to the economy,
industries, businesses, security markets, and securities as it may deem
necessary or useful in discharging its responsibilities under this
Agreement; (v) furnish the Board of Directors with periodic reports
concerning the Investment Manager's economic outlook and investment
strategy, as well as information concerning the Fund's portfolio activity
and investment performance; (vi) determine the creditworthiness of the
issuers, obligors, or guarantors of money market and debt securities
utilized by the Fund; and (vii) evaluate the creditworthiness of any entities
with which the Fund proposes to engage in repurchase transactions. In
furtherance of this duty, the Investment Manager, as agent and attorney-in-
fact with respect to the Fund, is authorized, in its discretion and without
prior consultation with the Fund and the Board of Directors of the
Company to buy, sell, exchange, convert for the Fund's use, and otherwise
trade in any money market instruments' bonds, and other securities or
assets, and to select the broker-dealers, underwriters or issuers to be used
and to place orders and negotiate commissions (if any) for the execution of
transactions in securities with or through such broker-dealers,
underwriters, or issuers.
1.2 Administrative services. In addition to investment advisory
services set forth above in 1.1, the Investment Manager shall oversee the
administration of all aspects of the Company's business and affairs with
respect to the Fund and shall provide certain services required for effective
administration of the Company with respect to the Fund, in connection
therewith, the Investment Manager shall:
1.2.1 Office and Other Facilities. Furnish, without cost to
the company, or provide and pay the cost of, such office facilities,
furnishings, and office equipment as are adequate for the Company's
needs.
1.2.2 Personnel. Provide, without additional
remuneration from or
other cost to the Company, the services of individuals competent to
perform all of the Company's executive, administrative, compliance, and
clerical functions that are not covered by 2.2.9 below or performed by or
through employees or other persons or agents engaged by the Company
(including, e.g., the custodian, accounting services agent, transfer agent,
dividend disbursing agent and shareholder servicing agent).
1.2.3 Agents. Assist the Company in selecting,
coordinating the activities of, supervising, and acting as liaison with any
other persons and agents engaged by the Company, including the
Company's custodian, accounting services agent, transfer agent, dividend
disbursing agent, shareholder servicing agent, independent accountants,
and independent legal counsel. The Investment Manager shall also
monitor the functions of such persons and agents, including, in particular,
the accounting services agent in its evaluation of the Fund's portfolio
securities.
1.2.4 Directors and Officers. Authorize and permit the
Investment Manager's directors, officers and employees who may be
elected or appointed as directors or officers of the Company to serve in
such capacities, without remuneration from or additional cost to the
Company.
1.2.5 Books and Records. Ensure that all financial,
accounting, corporate, and other records required to be maintained and
preserved by the Company or on its behalf will be maintained in
accordance with applicable laws and regulations and that the Company's
corporate existence will be maintained.
1.2.6 Reports to the Company. Furnish to or place at the
disposal of the Company such information, reports, evaluations, analyses,
and opinions relating to its administrative functions as the Company may,
at any time or from time to time, reasonably request or as the Investment
Manager may deem helpful to the Company.
1.2.7 Reports and Filings. Assist in the development and
preparation of all reports and communications by the Company to the
Fund's shareholders and all reports and filings necessary to maintain the
registrations and qualifications of the Company's shares under federal and
state law.
2. Allocation of Expenses.
2.1 Expenses Paid by the Investment Manager.
2.1.1 Salaries and Fees of Directors and Officers. As
between the Fund and the Investment Manager, the Investment Manager
shall pay all salaries, expenses and fees, if any of the directors, officers or
employees of the Investment Manager who are directors, officers or
employees of the Company. The Investment Manager has obtained such
personnel through an agreement with National Rural Electric Cooperative
Association, which has primary responsibility for the salaries, expenses
and fees of persons provided to serve as directors, officers and employees
of the Investment Manager.
2.1.2 Waiver or Assumption and Reimbursement of the
Company's Expenses by Investment Manager. The Waiver of assumption
and reimbursement by the Investment Manager of any expense of the
Company that the Investment Manager is not required by this Agreement
to waive, or assume and reimburse, shall not obligate the Investment
Manager to waive, or assume or reimburse, the same or any similar
expense of the Company on any subsequent occasion, unless so required
pursuant to a separate agreement between the Company and the
Investment Manager.
2.1.3 Organizational Expenses. The Investment Manager
shall pay or assume all organizational expenses of the Company.
2.2 Expenses paid by the Company. The Company, with
respect to the Fund, shall bear all expenses of its operations and business
not specifically waived, assumed or agreed to be paid by the Investment
Manager as provided in this Agreement or any other agreement between
the Company and the Investment Manager. In particular, the expenses
hereby allocated to the Company, with respect to the Fund, include, but
are not limited to:
2.2.1 Custody and Accounting services. All fees and
expenses of depositories, custodians, accounting service agents, and other
agents for the transfer, receipt, safekeeping, servicing of and accounting
for the Fund's cash, securities, and other property, including, among other
things, fees and expenses for the calculation of standardized effective and
compound yield quotations for the Fund, maintenance of ledgers, position
and income reports, and settlement of fund purchases and sales.
2.2.2 Transfer Agency, shareholder servicing, and
Dividend Disbursement. All costs of establishing, maintaining, and
servicing accounts of shareholders of the Fund, including the Fund's
proportionate share of all fees and expenses of the Company's transfer
agent, shareholder services agent, dividend disbursing agent and any other
agents engaged by the Company to service such Fund accounts. In
addition, the company shall reimburse the Investment Manager and charge
to the Fund the Fund's proportionate share of all expenses incurred by the
Investment Manager in responding to telephonic and written inquiries
from, and in mailing information to Fund shareholders and others who
may request information on behalf of Fund shareholders, regarding
matters such as shareholder account or transaction status, net asset value
of Fund shares, Fund performance, and general information about the
Fund.
2.2.3 Shareholder Reports. All costs of preparing, setting
in type, printing, and distributing reports and other communications to
shareholders of the Fund.
2.2.4 Prospectuses. All costs of preparing, setting in
type, printing and mailing to shareholders of the Fund annual or more
frequent revisions of the Company's Prospectus and Statement of
Additional Information and any supplements thereto.
2.2.5 Shareholder Meetings. All costs incidental to
holding meetings of shareholders of the Fund, including the printing of
notices and proxy materials, and proxy solicitations therefor.
2.2.6 Pricing and Portfolio Valuation. All costs of daily
valuation of the individual portfolio securities of the Fund and daily
computation of the net asset value per share of the Fund, including (i) a
proportionate share of the cost of any equipment obtained by the
Company, the Investment Manager or agents of the Company or a
proportionate share of the cost of any equipment currently owned by the
Investment Manager that will be used to price the Fund's shares or value
the Fund's assets, or (ii) the cost of the services of any agents engaged by
the Company for the purpose of pricing Fund shares or valuing the assets
of the Fund.
2.2.7 Communications. All charges for equipment or
services used for communications between the Investment Manager or the
Company and the custodian, accounting services agent, transfer agent,
shareholder servicing agent, dividend disbursing agent, or any other agent
engaged by the Company to provide services to the Fund.
2.2.8 Independent Legal and Accounting Fees. The
Fund's proportionate share of all charges for services and expenses of the
Company's independent legal counsel and independent accountants.
2.2.9 Directors' Fees and Expenses. The Fund's
proportionate share of all compensation of directors (other than those
directors affiliated with the Investment Manager), all expenses incurred in
connection with their services as directors, and all expenses of meetings of
the Board of Directors and committees of the Board of Directors.
2.2.10 Federal Registration Fees. The Fund's
proportionate share of all fees and expenses of maintaining the registration
of the Company under the 1940 Act and maintaining the registration of the
Fund's shares or registering additional shares of the Fund under the
Securities Act of 1933, as amended (the "1933 Act"), including all fees
and expenses incurred in connection with the preparation, setting in type,
printing, and filing of any post-effective amendments or supplements to
the Registration Statement, Prospectus, and Statement of Additional
Information for the Company under the 1933 Act or the 1940 Act that may
be prepared from time to time.
2.2.11 State Registration Fees. The Fund's proportionate
share of all fees and expenses of maintaining the registration and
qualification of the Company and of the Fund's shares for sale under the
securities laws of various states and jurisdictions and registering and
qualifying additional shares of the Fund, and of maintaining the
registration and qualification of the Company under all other laws
applicable to the Company or its business activities.
2.2.12 Issue, Redemption, and Transfer of the Fund's
Shares. All expenses incurred in connection with the issue, redemption,
and transfer of the Fund's shares, including the expenses of confirming all
share transactions and of transmitting share certificates for the Fund.
2.2.13 Bonding and Insurance. All expenses of bond,
liability, and other insurance coverage required by law or regulation or
deemed advisable by the Board of Directors of the Company, including,
without limitation, such bond, liability and other insurance expense that
may from time to time be allocated to the Fund in a manner approved by
its Board of Directors.
2.2.14 Brokerage Commissions. All brokers'
commissions, if any, and other charges incident to the purchase or sale of
the Fund's portfolio securities.
2.2.15 Taxes. The Fund's proportionate share of all taxes
or governmental fees payable to federal, state or other governmental
agencies, domestic or foreign, including issue, stamp, or transfer taxes.
2.2.16 Trade Association Fees. The Fund's proportionate
share of all fees, dues and other expenses incurred in connection with the
Company's trade association or other membership in any investment
organization.
2.2.17 Nonrecurring and Extraordinary Expenses. The
Fund's proportionate share of such nonrecurring and extraordinary
expenses as may arise, including the costs of actions, suits, or proceedings
to which the Company is a party and the expenses the Company may incur
as a result of its legal obligation to provide indemnification to its officers,
directors, employees, and agents.
3. Management Fees.
3.1 Compensation. The Company, with respect to the Fund,
shall pay the Investment Manager as compensation for all services
rendered, facilities provided and expenses waived or assumed and
reimbursed by the Investment Manager, investment management fees
computed as follows, based on the value of the average daily net assets of
the Fund:
3.1.1 Rate. The fees with respect to the Fund shall be at
the following annualized rates: 0.25% of average daily net assets.
3.1.2 Method of Computation. The fee shall accrue each
calendar day and the sum of the daily fee accruals for the Fund shall be
paid monthly to the Investment Manager on the first business day of the
next calendar month. The daily fee accruals shall be computed by
multiplying the fraction of one over the number of calendar days in the
year by the applicable annual rates for the Fund, described in
subparagraph 3.1.1, above, and multiplying the product by the net assets
of the Fund as determined in accordance with the Company's Prospectus
as of the close of business on the previous business day on which the
Company was open for business.
3.1.3 Proration of Fee. If this Agreement becomes
effective or terminates before the end of any month, the fee for the period
from the effective date to the end of such month or from the beginning of
such month to the date of termination, as the case may be, shall be
prorated according to the proportion which such period bears to the full
month in which such effectiveness or termination occurs.
4. Brokerage. Subject to seeking best execution, and subject to any
policies or procedures as then approved by the Company's Board of
Directors, the Investment Manager, in carrying our its duties under
paragraph 1.1, may cause the Fund to pay a broker-dealer which furnishes
brokerage and research services (as such services are defined under
Section 28(e) of the Securities Exchange Act of 1934, as amended (the
"1934 Act")) a higher commission than that which might be charged by
another broker-dealer which does not furnish brokerage and research
services or which furnished brokerage and research services deemed to be
of lesser value, if the Investment Manager determines in good faith that
the amount of such commission is reasonable in relation to the value of the
brokerage and research services provided by the broker-clearer viewed in
terms of either that particular transaction or the overall responsibilities of
the Investment Manager with respect to the other accounts, if any, as to
which it exercises investment discretion (as such term is defined under
Section 3(a)(35) of the 1934 Act).
5. Investment Manager's Use of the Services of Others. The
Investment Manager may at its own cost (except as contemplated by
Paragraph 4 of this Agreement) employ, retain or otherwise avail itself of
the services or facilities of other persons or organizations for the purpose
of providing the Investment Manager or the Company with (i) such
statistical and other factual information; (ii) such advice regarding
economic factors and trends; (iii) such advice as to occasional transactions
in specific securities; (iv) or such other information, advice or assistance
as the Investment Manager may deem necessary, appropriate or
convenient for the discharge of its obligations hereunder or otherwise
helpful to the Company or the Fund, or in the discharge of the Investment
Manager's overall responsibilities with respect to the other accounts which
it serves as an investment manager.
6. Ownership of Records. All records required to be maintained and
preserved by the Company, with respect to the Fund, pursuant to the
provisions of rules or regulations of the Securities and Exchange
Commission under Section 31(a) of the 1940 Act and maintained and
preserved by the Investment Manager on behalf of the Company, with
respect to the Fund, are the property of the Company and shall be
surrendered by the Investment Manager promptly on request by the
Company.
7. Reports to Investment Manager. The Company shall furnish or
otherwise make available to the Investment Manager such Prospectuses,
Statements of Additional Information, financial statements, proxy
statements, reports, and other information relating to the business and
affairs of the Company, with respect to the Fund, as the Investment
Manager may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
8. Services to Other Clients. Nothing herein contained shall limit the
freedom of the Investment Manager or any affiliated person of the
Investment Manager to render investment supervisory and corporate
administrative services to other investment companies, to act as
investment counselor to other persons, firms or corporations, or to engage
in other business activities; however, so long as this Agreement or any
extension, renewal or amendment hereof shall remain in effect or until the
Investment Manager shall otherwise consent, the Investment Manager
shall be the only investment manager to the Company.
9. Limitation of Liability of Investment Manager. Neither the
Investment Manager nor any of its officers, directors, or employees, nor
any persons performing executive, administrative, trading, or other
functions for the Company, with respect to the fund or the Investment
Manager (at the direction or request of the Investment Manager) in
connection with the Investment Manager's discharge of its obligations
undertaken or reasonably assumed with respect to this Agreement, shall be
liable for any error of judgment or mistake of law or for any loss suffered
by the Company, with respect to the Fund, in connection with the matters
to which this Agreement relates, except for loss resulting from willful
misfeasance, bad faith, or gross negligence in the performance of its or
their duties on behalf of the Company or from reckless disregard by the
Investment
Manager or any such persons of the duties of the Investment Manager
under this Agreement.
10. Term of Agreement. This Agreement shall have a term of 12
months beginning on the first day of the month following the affirmative
vote of a majority of the outstanding voting securities of the Fund
approving this Agreement. This Agreement shall thereafter continue from
year to year, but only so long as such continuance is specifically approved
at least annually by the Board of Directors of the Company or by vote of a
majority of the outstanding voting securities of the Fund in accordance
with the requirements of the 1940 Act, and in either event by the vote of a
majority of the Board of Directors of the Company who are not "interested
persons" (as defined in the 1940 Act and rules thereunder) of any such
party, cast, in person, at a meeting called for the purpose of voting on such
approval.
Any approval of this Agreement by the holders of a majority of the
outstanding shares (as defined in the 1940 Act and rules thereunder) of the
Fund shall be effective to approve or continue this Agreement with respect
to the Fund, notwithstanding (i) that a comparable agreement has not been
approved by the holders of a majority of the outstanding shares of any
other series of the Company and (ii) that this Agreement has not been
approved by the vote of a majority of the outstanding shares of the
Company, unless such approval shall be required by any other applicable
law or otherwise. The Investment Manager shall furnish to the Company,
promptly upon its request, such information as may be reasonably
necessary to evaluate the terms of this Agreement or any extension,
renewal or amendment thereof.
11. Amendment and Assignment of Agreement. This Agreement may
not be amended without the affirmative vote of a majority of the
outstanding voting securities of the Fund, and this Agreement shall
automatically and immediately terminate in the event of its assignment.
12. Termination of Agreement. This Agreement may be terminated by
either party hereto, without the payment of any penalty, upon 60 days
prior notice in writing to the other party; provided, that in the case of
termination by the Company such action shall have been authorized by
resolution of a majority of the Board of Directors of the Company who are
not parties to this Agreement or interested persons of any such party, or by
vote of a majority of the outstanding voting securities of the Fund.
13. Miscellaneous.
13.1. Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any
of the provisions hereof or otherwise affect their construction or effect.
13.2. Interpretation. Nothing herein contained shall be deemed
to require the Company to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve or
deprive the Board of Directors of its responsibility for and control of the
conduct of the affairs of the Company.
13.3 Definitions. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to
such term or provision of the 1940 Act and to interpretations thereof, if
any, by the United States courts or, in the absence of any controlling
decision of any such court, by rules, regulations or orders of the Securities
and Exchange Commission validly issued pursuant to the 1940 Act.
Specifically, the terms "vote of a majority of the outstanding voting
securities", "interested person", "assignment", and "affiliated person"
shall have the meanings assigned to them by Section 2(a) of the 1940 Act.
In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is relaxed by a rule, regulation or order of
the Securities and Exchange Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate seals to be hereunto affixed, as of the day and year
first above written.
ATTEST: HOMESTEAD FUNDS, INC.
on behalf of the Nasdaq-100 Index
Tracking StockSM Fund
/s/Hope X. Xxxxxx By: /s/Xxxxxx Xxxxxxxx
Hope X. Xxxxxx, Secretary Xxxxxx Xxxxxxxx,
Vice-President and
Counsel
ATTEST: RE ADVISERS CORPORATION
/s/Hope X. Xxxxxx By: /s/Xxxxx X. Xxxxxx
Hope X. Xxxxxx, Secretary Xxxxx X. Xxxxxx, President
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